Theres a method oftiming your purchases based onthe overall movement of the

Theres a method oftiming your purchases based onthe

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would you have known the price was going to continue to go down? There’s a method of timing your purchases based on the overall movement of the stock’s price that I call FACs, short for Floors and Ceilings. FLOORS AND CEILINGS (FACs) The Floors and Ceilings (FACs) Stockpiling method uses repetitive patterns in the price of a stock to predict the future direction of price. While it isn’t quite as subjective as seeing lions in the stars or bunnies in the clouds, not everyone will agree that a certain Floor or Ceiling exists. In other words, FACs aren’t an objective method as a MAC is. On the other hand, FACs are a lot more useful. FACs are a big help in getting the timing right to stockpile at big discounts to the MOS Price. FACs are based on the experience that the Big Guys—the fund managers controlling billions in the market—get certain price targets
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stuck in their heads. FACs are purely psychological. But even so, they are very real. If a Big Guy has it in his head that he’s going to buy at $75 the very next time the stock hits that price because the price bounced off that price and went up two times before, then, to that trader, $75 is as real a floor on the price as if it were made out of granite. Look at any chart that tracks prices of a particular stock. You’ll notice stock prices never go up for long before changing direction and heading back down at least a bit. Even in “straight-up” bull markets in a stock, there are regular times when the stock goes down for a short time before resuming its upward path. The authentic Wall Street gibberish for these times includes “pullbacks,” “retrenchments,” and “corrections.” The reason for these regular pullbacks is built into the psyche and emotions of the investors who control the price of any stock—the infamous Big Guys. They get, in a word, scared (or greedy). If a stock’s price is headed up, the Big Guys who own it eventually begin to worry it’s maybe peaked. They know how far it traveled in both price and time the last time it ran up, and that information plays into their trading psychology. Since it takes Big Guys weeks to get all the way out, they have to anticipate a mass exit. To do so, they start to sell. Selling also lets them take profits. There is a saying among mutual fund managers that nobody ever went broke taking a profit. Taking a profit protects the fund manager from criticism for staying in too long, and the profit helps their portfolio’s rate of return. But if, after they start selling, the price stops going down, they get their mojo back and buy back in. This starts another run-up. The FACs Stockpiling method calls a recurring price level a “Floor,” as in, if you’re falling you’ll stop falling when you get to the floor. When the price repeatedly bounces up off that price and doesn’t break down through it, we know we’re at a Floor. The more often it bounces off, the stronger the Floor.
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  • Spring '20
  • Warren Buffett

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